MOSCOW (MRC) -- US refiners are expected to show higher earnings for the third quarter as margins to sell gasoline and diesel have improved despite the surging cost of crude oil, reported Reuters with reference to analysts.
After more than a year of depressed fuel demand, gasoline and distillate consumption is back in line with five-year averages in the United States, the world's largest fuel consumer. That has boosted margins on refined products to more than double what those companies were making at this time a year ago.
The seven largest independent US refining companies, including giants Marathon Petroleum and Valero Energy , are projected to post an average earnings-per-share gain of 66 cents, versus a loss of USD1.32 for the third quarter of 2020, according to IBES data from Refinitiv.
Those gains are driven by the 3-2-1 crack spread, a proxy for refining margins, which assumes a barrel of crude oil is refined to three parts gasoline, two parts diesel and one part jet fuel. That spread is currently at USD21 per barrel, compared with around $9 a year ago.
Energy demand has recovered swiftly from the worst days of the pandemic in 2020, and Brent and US crude oil prices have reached multi-year highs in recent days. But product demand has also increased, and that has helped boost margins.
Product supplied - a proxy for US refined product demand - was 21.5 MM barrels per day (bpd) in the most recent week, slightly higher than the same period in 2019, prior to the onset of the pandemic, according to the US Energy Information Administration (EIA).
"The market is getting back in equilibrium," Credit Suisse analyst Manav Gupta said in a note.
Refiners are also benefiting from lower inventories of their products as recent storms and the pandemic knocked refining capacity offline. Approximately 2.5 MMbpd of refining capacity has been shut since the start of the pandemic, which is almost four times the 10-year average, according to Credit Suisse's Gupta.
Delta Air Lines' refinery in Monroe, Pennsylvania, earned nearly USD100 MM last quarter, its first positive results since the first quarter of 2020, according to figures released last week. Tudor Pickering Holt analysts cited strong gasoline and diesel crack spreads as helping the refiner recover.
Jet fuel demand is still below pre-pandemic levels, but international flights are expected to resume to Europe in November. The spot price of US Gulf Coast kerosene-type jet fuel is USD2.10 dollars per gallon, the highest since October 2018, despite demand still 12% below 2018 levels, per EIA data.
Analysts have also been raising estimates for refiners such as PBF Energy and HollyFrontier due to declining costs of complying with the nation's biofuels laws. Refiners are required to blend ethanol into the nation's gasoline pool or buy credits for others who can.
As MRC informed earlier, in May, 2021, US refiner Marathon Petroleum Corp said its board had approved the conversion of the Martinez refinery in California to a renewable diesel plant. Besides, the company made a final investment decision regarding this project. Martinez, once complete, will be one of the largest renewables facilities in the country.
Ethylene and propylene are the main feedstocks for the production of polyethylene (PE) and polypropylene (PP), respectively.
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,638,370 tonnes in the first eight months of 2021, up by 10% year on year. Shipments of all grades of ethylene polymers increased. At the same time, PP shipments to the Russian market were 989,570 tonnes in the first eight months of 2021, up by 30% year on year. Deliveries of homopolymer PP and block-copolymers of propylene (PP block copolymers) increased, whereas shipments of injection moulding PP random copolymers decreased significantly.